A look at the gaping divergence between Spain (EWP) and other major continental markets (with the S&P thrown in) this year - Germany (EWG), France (EWQ), and Italy (EWI). It reminds of the performance gap between the continent and a diving Greece this time last year, which meant little until all of a sudden it meant a lot.

The Wolfson Economics Prize names five finalists for its competition for papers about how a country might exit the euro. They include Record Currency Management's Neil Record, who says the only way would be to blow the whole thing up. There's also an honorabe mention for 11-year-old Dutch schoolboy Jurre Hermans, whose solution involves pizza.

Don't expect any more ease out of the ECB at tomorrow's policy meeting. Instead, look for President Draghi to use his press conference to throw the Germans a bone by reminding governments they have been a respite by the central bank and to use the time wisely.

David Kotok's definition of moral hazard: "The action is done today and the price is determined later; after the chickens have come home to roost." By that time, the leaders who brought on the moral hazard are gone, and those who inherit the mess get the blame. "Government only knows how to run up small losses until they are huge."

"Contagion may ... re-emerge at very short notice ... and re-launch the potentially perverse triangle between sovereign, bank funding risk and growth," goes one of two confidential analyses prepared for EU finmins at today's meeting. The LTRO, they say, provided merely a reprieve with governments and banks needing to use the calm period to take action.

The Bundesbank will no longer accept bank bonds from Ireland, Greece, and Portugal as collateral, the first EU central bank to exercise this right recently granted by the ECB. The Buba currently has €500M of the paper pledged to it and will spend the next weeks notifying banks that new arrangements will be necessary.

The dollar performs a full LoBagola in March, rising sharply through mid-month, but returning today right back to its starting point. Key to the turnaround were quick reversals in yen and euro weakness, likely helped by just a bit of wobble in risk markets and Fed chatter being interpreted as more easing on the way.

Eurozone finmins are meeting today in Copenhagen, where they're expected to agree to increase the eurozone's firewall, although Finland's Jutta Urpilainen says the projected figure of €940B is too high. The Irish want €1T. Either way, more of the money could be needed for Greece, whose PM, Lucas Papademos, admits may require a third bailout.

German companies' sentiment towards the euro "returned unambiguously into negative territory" in March, according to a Commerzbank survey. Euro bears rose 10 points to 36%, says the bank, which notes the exporters it surveys have - in the past - had good predictive abilities going out 90 days.

Yields on Portugal's 2-year paper fall for a 10th consecutive day, the longest winning streak in 3 years as optimism returns (even as it leaves Spain and Greece). The yield on the 2-year note of 9.37% is the lowest since last April, and sharply below 20%+ hit earlier this year.

"Just like the 'Tower of Babel,' the 'Wall of Money' will never reach heaven," says Bundesbank chief Jens Weidmann, sounding like a good German central banker as he warns the ECB's easing actions and the EU firewall only create new problems. He brushes off claims austerity will hurt growth as exaggerated, and says "there is little alternative" in any case.

Ahead of elections expected (but not yet scheduled) in about a month, fringe parties in Greece - ranging from Communists to neo-Nazis - are registering 50% in polls. The political establishment - New Democracy and Pasok - are at just 35-40% vs. the combined 75% of the vote won in 2009. "A recipe for chaos," says a political consultant. (see also)

As European politicians and central bankers wear out their arms patting themselves on the back, firms and consumers continue to pull their money out of Greece, private sector bank deposits falling 2.7% in February. At €170B, the level is the lowest since 2006 and 30% below the December 2009 peak.

The likelihood of a euro break-up remains low, says Fitch, concluding the costs of such would be too great, plus the LTRO has saved the day for now. Despite the conventionality of the conclusions, the agency's Eurozone Sovereign Snapshot is a handy report, covering in some detail each of the euro states. (full .pdf)

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